Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed over the past few years. However, hedge funds are generally partially-hedged and aim to deliver attractive risk-adjusted returns rather than follow the ups-and-downs of equity markets hoping that they will outperform the broader market. Our research shows that hedge funds do have great stock picking skills, so let’s take a glance at the smart money sentiment towards McDonald’s Corporation (NYSE:MCD).
McDonald’s Corporation (NYSE:MCD) has experienced a decrease in activity from the world’s largest hedge funds in recent months. MCD was in 55 hedge funds’ portfolios at the end of the third quarter of 2016. There were 63 hedge funds in our database with MCD positions at the end of the previous quarter. At the end of this article we will also compare MCD to other stocks including GlaxoSmithKline plc (ADR) (NYSE:GSK), CVS Caremark Corporation (NYSE:CVS), and AbbVie Inc (NYSE:ABBV) to get a better sense of its popularity.
Follow Mcdonalds Corp (NYSE:MCD)
Follow Mcdonalds Corp (NYSE:MCD)
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Hedge fund activity in McDonald’s Corporation (NYSE:MCD)
At the end of the third quarter, a total of 55 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 13% drop from one quarter earlier. Of the funds tracked by Insider Monkey, Jonathon Jacobson’s Highfields Capital Management has the largest call position in McDonald’s Corporation (NYSE:MCD), worth close to $583.3 million, accounting for 5.5% of its total 13F portfolio. Sitting at the No. 2 spot is D E Shaw, founded by David E. Shaw, holding a $545.9 million position. Other professional money managers with similar optimism encompass John Overdeck and David Siegel’s Two Sigma Advisors, Phill Gross and Robert Atchinson’s Adage Capital Management, and Israel Englander’s Millennium Management.
Judging by the fact that McDonald’s Corporation (NYSE:MCD) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there was a specific group of hedge funds that slashed their full holdings heading into Q4. At the top of the heap, Daniel S. Och’s OZ Management dumped the biggest position of the 700 funds tracked by Insider Monkey, worth about $186 million in stock. Jacob Doft’s fund, Highline Capital Management, also sold off its stock, about $116.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 8 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as McDonald’s Corporation (NYSE:MCD) but similarly valued. We will take a look at GlaxoSmithKline plc (ADR) (NYSE:GSK), CVS Caremark Corporation (NYSE:CVS), AbbVie Inc (NYSE:ABBV), and Schlumberger Limited. (NYSE:SLB). All of these stocks’ market caps are similar to MCD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GSK | 33 | 1094325 | 5 |
| CVS | 58 | 2005455 | 4 |
| ABBV | 56 | 4170340 | -1 |
| SLB | 59 | 1564821 | 4 |
As you can see these stocks had an average of 51.5 hedge funds with bullish positions and the average amount invested in these stocks was $2.21 billion. That figure was $2.77 billion in MCD’s case. Schlumberger Limited. (NYSE:SLB) is the most popular stock in this table. On the other hand GlaxoSmithKline plc (ADR) (NYSE:GSK) is the least popular one with only 33 bullish hedge fund positions. McDonald’s Corporation (NYSE:MCD) is not the most popular stock in this group but hedge fund interest is still above average, as is the amount of money invested in it. While this is a slightly positive signal, given that the stock has shed smart money investors over the past two quarter, we don’t believe it’s a good time to consider McDonald’s, as we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SLB might be a better candidate to consider a long position in.
Disclosure: None
